Second Circuit Questions Arbitrators’ Authority Over Absent Class Members

Yesterday the Second Circuit cast doubt on whether an arbitrator can certify a class that includes absent class members. The court remanded for the district court to decide “whether the arbitrator exceeded her authority in certifying a class that contained absent class members who have not opted in.” Jock v. Sterling Jewelers, Inc., No. 15-3947-cv (2d Cir. July 24, 2017). The case poses potentially big implications for class arbitration’s ability to resolve cases with finality.

In February 2015, the arbitrator certified a class of more than 44,000 current and former women employees alleging disparate pay and promotion practices under Federal Rule 23(b)(2)’s provision for classes seeking declaratory or injunctive relief. Sterling Jewelers moved to vacate the award, arguing that the arbitrator lacked authority to certify a class that included members who had not consented to join the arbitration. The district court affirmed the arbitrator’s decision, reasoning that a prior Second Circuit decision in Jock that allowed the arbitration to proceed as a class also gave the arbitrator authority to certify a class of absent class members. The district court also leaned on Oxford Health Plans v. Sutter, where a unanimous Supreme Court held that an arbitrator did not exceed his power in finding that the contract at issue authorized class arbitration.

The Second Circuit disagreed in a summary order, stating that its earlier decision and Oxford Health did not resolve “whether the arbitrator had the power to bind absent class members to class arbitration.” The Second Circuit questioned an arbitrator’s authority to adjudicate absent class member claims, particularly where “[c]lass arbitration is a matter of consent” and the absent class members “never consented to the arbitrator determining whether class arbitration was permissible under [their employment] agreement in the first place.”

The decision is another chapter in the more than nine-year saga of the women’s sex discrimination claims against one of the world’s largest retailers of diamonds, rings, and watches. The case highlights the challenges of arbitrating class claims and raises questions about whether employers ultimately fare better in arbitration or federal court for class claims. In Jock, if the court ultimately concludes that the arbitrator cannot bind absent class members, it may serve as a short term procedural win in the case but pose long term issues for employers who seek to resolve class actions with sweeping finality.

Key Takeaways: Employers should carefully consider whether they would prefer arbitration over federal or state court for class cases. The considerations may vary depending on the size of the employer and the potential risks for class litigation. In addition, class action arbitration law is in a state of rapid flux, so employers who prefer arbitration need to ensure their agreements reflect the latest developments in the law.

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